S 155 

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Industrial Management's 
Cost Control Committee Plan 



Detailed Instructions for Its 
Organization and Operation 



By John H. Van Deventer 

Editor, Industrial Management 



Copyright, 1922, 

By 

The Engineering Magazine Company 

120 West 32nd Street, New York 



MfcR28'22 

CU672160 



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Organization and Operation of 
tlie Cost Committee Plan 

INDUSTRIAL Management's Cost Control Com- 
mittee Plan was devised as an effective means for 
building industrial "economy morale," for the 
primary purpose of re-establishing manufacturing 

profits. 

To understand thoroughly the purpose and operation 
of this plan you must first understand just what we mean 
by economy morale. 

Economy is the watchvv^ord for 1922, and will be for 
som.e years to come. Economy, in industry, does not 
mean going without things that we need; using old, 
worn-out machines or cheap men or worthless methods. 
It means investing the company's energy most wisely— 
so it will bring in the greatest return. 

Every industrial concern uses three forms of energy — 
man-hours, dollars and power. Whether an organiza- 
tion uses these forms of energy wisely and economically, 
or waste fully and ignorant ly, determines whether it 
succeeds (and makes a profit) or fails. This statement 
is not new or radical— every executive will accept it as 
true and every progressive company takes systematic 
steps to inculcate economy and efficiency. But in nine 
hundred and ninety-nine plants out of every thousand, 
this effort toward economy is superimposed — in other 
words, through disciplinary channels. 

Discipline and morale are two entirely different 
things, as one will readily see who stops to think a 
moment. The American army had much less discipline 
than the German arm.y, but it overwhelmingly made up 
for this lesser discipline by better morale. The average 
American soldier in France was decidedly less expert at 
maneuvers than the average German soldier, but the 
American's heart and mind were keyed up to fighting 
pitch as well as his body. Morale and not discipline was 
what enabled individual American soldiers, such as 
Sergeant York and others, to single-handed defeat and 

3 



capture fifty or more better drilled, better armed and 
better disciplined German soldiers. 

In industry, as in war, we must have both discipline 
and morale, but when the test comes, the latter quality 
is the one that wins the day. 

During the remainder of this year of 1922 — and 
probably for a number of years to come — economy must 
be the watchword for every industrial organization. 
Our available units of money, m.an-hours and power 
must be made to count effectively — wastes must be 
eliminated — a profit must be had if we are to survive, 
and had largely from what we have wasted or thrown 
away in the past. Indeed this economy is so vitally ne- 
cessary that it is safe to say that those firms that do not 
now make it their primary policy will find the ones that 
do so taking the bulk of the business and all of the 
profits away from them. And this spirit of economy 
must pervade the ranks— it cannot be superimposed 
by the management, nor fully obtained through the in- 
dividual effort of department managers — disciplinary 
measures and disciplinary channels, in other words, are 
not suitable nor sufficient for developing it successfully. 
To develop its full possibilities, it must be an economy 
morale created and inspired instead of being merely 
superimposed. 

We believe that the Cost Control Committee Plan, out- 
lined herein, is the most effective, practical and logical 
m.ethod of creating a real economy morale in any or- 
ganization. 

jjs H: * 

We beheve in it thoroughly and completely because 
we have found, in our own organization, that it m.akes 
every intelligent and thinking employee strive just as 
forcefully for economy and waste elimination as do our 
executives and department heads. 

THE MECHANICS OF THE COST CONTROL COM- 
MITTEE PLAN 

Broadly speaking, this plan divides itself into two 
elements — the Mechanics of the Plan and the Opera- 
tion of the Plan. 

The Mechanics of the Cost Control Committee Plan 
consists in the formation of a number of committees, 

4 



in general independent from the permanent disciplinary 
organization, but drawing upon it appropriately for 
personnel. The primary functions of these committees, 
which are so organized and subdivided as to include the 
key (m.ost active and influential) members of the non- 
executive personnel, are : 

The Analysis of Manufacturing Costs and Expenses 
Detailed Waste Surveys in Assigned Processes 
Budget Control and Revision 
Suggestions for Specific Cost Cutting 

A Co-ordinating Committee, or central committee, 
controls the activities of five general committees cover- 
ing the five primary industrial elements of Men, Meth- 
ods, Machinery, Materials and Money. These five 
general committees are again subdivided into numerous 
sub-committees to suit the specific needs of the organiza- 
tion. The chart on page 6, shows a typical industrial 
organization and on the page facing it is shown a typical 
Cost Control Committee organization with its ramifica- 
tions, adapted to this organization. 

The make-up of the committee organization will, of 
course, vary with the need of your own plant and must 
be suited to it. 

Individual industries vary in their components more 
widely than individuals vary in feature and tempera- 
ment. In one plant, for example, labor is a small item. 
The process is almost entirely automatic and the big 
outstanding elements of cost are materials and power. 
If the cost control committees have a given number of 
dollars and hours to invest in a cost' attack in this plant, 
the outstanding places to put it are in the purchase, 
handling, use and storage of material and the generation 
of power — not in reduction of direct labor. 

Again there is the plant in which direct labor is the 
predominating item. The process, perhaps, requires 
great skill and a high degree of training, the quantities 
involved in manufacture are such that automatic ma- 
chines are out of the question, the material cost and 
the power cost are insignificant compared with the item 
of labor. 

Still another plant may show no very great dispropor- 
tion between these three typical items of material, labor 
and power. In this case the committee organization 



I EXECUTIVE 

I off ice: 



SALES 
DIPT. 




FACTORY 

PRODUCTION 

OFnCE 




TYPICAL ORGANIZATION PLAN OF AVERAGE 
FACTORY. 



Suh- Committee 



General 
Committee 

MONEY 



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Lxpsnse 
Analysis 



Cost 

^ Budqet 
Adjusimgni 



Enfire 
Pt^nt 
'^pgrsonnel 




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CO 



J-" J-. 
K o 

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OJ CD 

r)— I t-t— I 

o f:; 

a I. 

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coordinating 
committee: 



METHODS 



/ 



Production Pro-j 
cess Surveys 



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Office Routine 



Handlint^ 
Mettiods 

Stock Keepinc^ 



Power Pknt 
Mettiodfe 



MACHINER 



3 



/ 



Produciionlquip 
ment Survey 



Transmission & 
Auxiliary Equip. 




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en > 

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o r 



03 

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MATERIALS 



VcTste & Scrap 
Reduction 



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R.ecI(?miation 



in o 

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COST CONTROL COMMITTEE ORGANIZATION 
SUITABLE FOR AVERAGE FACTORY. 

7 



must be such as to apply the greatest cost saving energy 
on that factor which is weakest, least efficient and there- 
fore susceptible to most improvement. This, too, sounds 
axiomatic and one would say could scarcely be over- 
looked, but it is nevertheless and very frequently. 
Doubtless all who read this can call to mind factories 
which have elaborate cost and production systems, but 
very second rate mechanical equipment — a very perti- 
nent demonstration of this truth. 

It will be seen that industries vary so considerably in 
the relationships of their components of cost that, while 
each has many points of profitable attack, these will not 
necessarily coincide nor will the emphasis to be put 
on a certain point in one plant be equal to that which 
should be applied to the same point in another. 

CO-ORDINATING COMMITTEE AND 
"MONEY" COMMITTEE FORM THE STARTING 

POINTS 

It is for the above reason that we recommend that in 
installing the Cost Control Committee Plan, the initial 
step be forming the Co-ordinating Committee and the 
Money Committee. These, unlike the remaining Gen- 
eral Committees and their subdivisions, are most suit- 
ably drawn almost entirely from the executive personnel. 
These two committees must, through their recommenda- 
tions, devise the organization of the remainder of the 
committees and through the formation of the sub-com- 
mittees, shape the general points of attack on wastes and 
excessive costs. 

A suggested make-up for these two committees is as 
follows : 

Co-ordinating Cojnmittee ''Money" Com^mittee 

General Manager (Chair- Treasurer (Chairman) 

man) Chief Accountant 

Production Manager Cost Accountant 

Heads of Production De- Production Manager 

partments General Manager (Ex-off.) 

The Money Committee first makes an analytical study 
of various groups of expenditures, with the purpose 
of segregating those items of expense which, due to 
their relative prominence, are considered promising 
fields for effort toward economy. The principle kept 



in mind during this analysis is that a possible saving of 
10% on an item involving $100,000, for example, is more 
promising of results than applying the same time and 
energy, with equal possibilities, to a $10,000 item. In 
other words, to make a start, aim to hit the Jiigh spots 
first. And the initial job of the Money Committee is to 
list the high spots. 

The Aloney Committee then reports its findings and 
recommendations to the Co-ordinating Committee, which 
in the meantime has listed the weak spots. The high 
spots and the weak spots determine the general make-up 
of the remainder of the committees and of the sub- 
committees whose specific job is to find ways and means 
to reduce these high spots and strengthen the weak spots. 

Thus far the work has followed disciplinary channels 
but from this point forward, the morale element is em- 
phasized. The next step is to ''sell" the plan to the or- 
ganization as a whole, and this is the first task of the 
General Committee on Men. 

A suggested make-up of the General Committee on 
Men is as follows : 

Personnel or Employment Manager (Chairman) 
Sales Manager 

Foreman of Production Department #1 
Foreman of Production Department #2 
Foreman of Production Department #3 
Foreman of Production Department #4 
Foreman of Assembly Department 
Six of the most influential employees selected * 
from various departments. 

The first activity of the General Committee on Men 
is to study the plan in full, as outlined in this booklet, 
and to thus familiarize itself with its scope and purpose. 
The second step is to have every member of this com- 
mittee firmly convinced that economy and v/aste elim- 
ination is the policy that must be adopted throughout 
the organization — not only in order to have the com- 
pany survive and progress but also because the wages 
and opportunities of every one in the organization prim- 
arily depends upon it. We recommend that this com- 



* May be elected if shop committee representation is in 
effect. 



mittee study carefully the editorials in Industrial Man- 
agement, January, 1922, page 1, and February, 1922, 
pages 65 and 98, which were written for the purpose of 
demonstrating this truth. 

The third step for the General Committee on Men is 
to explain the Cost Control Committee Plan to the or- 
ganization as a whole so that every member of the or- 
ganization understands that it is to his personal advant- 
age as leading to permanency, full time employment, 
good wages and better working conditions, to cooperate 
faithfully and fully through suggestions, personnel 
economies and efforts to reduce waste. 

In this connection it is timely to say that neither the 
Cost Control Committee Plan, nor any other plan wdiich 
involves morale as distinguished from discipline, will 
succeed in organizations in which the management, 
whether deservedly or undeservedly, has the distrust of 
the employees. When such feehng exists any innova- 
tion is suspected of being merely an exploitation and is 
foredoomed to failure. Morale is a reciprocal proposi- 
tion — it must exist in the management before it can ex- 
ist among employees. Fortunately, however, in the 
average American industrial organization Management 
and Labor respect each other even if they disagree on 
certain subjects. 

Again, to be successful, the economies resulting from 
the Cost Control Committee Plan must better the con- 
dition of those who help to effect them — and must be 
miade known. Publicity is a fundamental concomitant 
to morale. Under the h^ad of incentives, other than 
the direct financial incentives of bonus rewards, etc., 
that may be worked out by the Incentives sub-commit- 
tee of the General Committee on Men, the following in- 
direct incentives must be kept in mind : 

The fact that every operative gains interest in his work 
in proportion to his knowledge of the process, the final 
use of the product and the relation of his work to these 
things. The work of the various committees, being 
largely educational, produces this result. 

The fact that ambitious employees are given an oppor- 
tunity to prove their fitness for promotion and get the 
attention of the management through their active par- 
ticipation in the plan and their practical suggestions for 
waste elimination. 

The fact that the records of the various committees 
and the savings resulting from, their work, being made 

10 



public ^^ regularly, creates the "competitive interest" or 
"game" spirit which is recognized as a large factor in 
moral promotion. 

The "Publicity" Sub -committee of the General Com- 
mittee on Men has the function of keeping interest alive 
in ths Cost Control Committee Plan after the novelty has 
worn off, by the frequent pubhcation of results obtained, 
by installing graphic performance charts in various de- 
partments, by conducting a feature department in the 
plant m.agazine, etc. 

THE THREE TECHNICAL GENERAL COMMITTEES 

Thus far we have sketched the mechanics of the cost 
control committee organization as applied to the co-or- 
dinating committee and the general committees on 
money and men. The remaining three general commit- 
tees, namely, Methods, Machinery, and Materials, and 
their sub-committees may be described as ''technical" 
since their functions are to make surveys, to elicit sug- 
gestions and to compose recommendations as applied to 
bettering specific technical components of the manufact- 
uring process. The principle of subdivision into sub- 
committees based upon the study of the co-ordinating 
and money committees is to give each sub-committee a 
definite job and a practical job — in other words, to nar- 
row its field beyond the point of generality or vagueness 
so that each sub-committee has something very specific 
to work upon instead of attempting to cover the whole 
field with its activities. This is a very important point, 
for it differentiates the plan very distinctly from the 
old "Suggestion System" which failed because of its 
generality and because under it eff'ort was diffused in- 
stead of concentrated. These three technical committees 
should be composed with three distinct purposes in mind : 

1. To incorporate in their membership the key members 
of the non-executive personnel who come most closely in 
contact with the subjects to be survej^ed, and also such 
members of the executive personnel who are charged 
under the general disciplinary organization with the 
responsibiliy for definite results — relating to these sub- 
jects. 

2. To secure as part of the membership a sufficient 
number of "detached viewpoints." Men arc largely crea- 
tures of liabit and those who are most intimate and famil- 
iar with existing ways of doing things come to regard 
them as satisfactory because these methods and processes 

11 



exist and do the work. It is important, therefore, to in- 
corporate in each one of these three committees analy- 
ticall}/-minded people who are not directly connected with 
the daily routine to be investigated and who would be 
inclined to question the reason for existence of various 
processes and methods. 

3. To incorporate as part of the membership of these 
three com^mittees "general viewpoints" represented by 
those who have a broad knowledge of the general policy 
and plans of the organization and who are therefore in 
position to advise how suggested changes fit or do not fit 
into the general plan. 

FUNCTIONING OF THE COST CONTROL COM- 
MITTEES 

The sub-committees function continuously, each mem- 
ber being urged to do these three things : 

1. Discuss the problems and purposes of his committee 
with as many members of the general personnel as pos- 
sible with a view of getting their ideas, viewpoints and 
suggestions. 

2. To carefully comb current technical publications for 
ideas as to how other concerns handle the same problem. 

3. To question each step in the process or system as 
to its necessity and after its necessity is established to ques- 
tion its efficiency. 

Each sub-committee meets once a week to receive 
reports from individual members and to compose rec- 
ommendations to its corresponding general committee. 
The general committees meet once a week, one or two 
days after the date of meeting of the sub-committees, 
to receive the reports of their sub-committees and to 
consider them. At such m.eetings the chairman of each 
sub-committee is present. 

The members of the coordinating committee meet 
once a week preferably one or two days after the meet- 
ing of general committees to consider and act upon the 
recommendations transmitted, and also to make sug- 
gestions for new lines of effort for the various sub- 
committees or for the formation of new sub-committees 
on subjects which may develop as necessary or desir- 
able. 

In the functioning of these committees, as outlined 
above, it will be noted that the principle ''direction of 
flow" of ideas, criticisms and suggestions, is upward, 
originating through the work of the sub-committees, 
in the operating or subordinate personnel and culminat- 
ing in the co-ordinating committee which is largely 

12 



executive in membership. This is exactly opposite from 
the "flow of orders" through the disciphnary organiza- 
tion. The "rate of flow" of ideas, suggestions and criti- 
cisms will be a measure of the economy morale created 
by the committee on Men and of its sub-committee on 
Publicity. 

Where the Budget Plan is in operation, the General 
and Sub-committees will be found exceedingly effective, 
not only in helping to control expenditures so that the 
budget figure is met, but also in helping to revise budget 
figures in a favorable direction. In fact, the Cost Con- 
trol Committee Plan fits itself admirably either into an 
existing budget or as a means of creating and instaUing 
a budget plan in such plants as have not already taken 
this forward step. 

A CONCRETE EXAMPLE OF COST CONTROL 

WORK 

A concrete example of a typical Cost Control Com- 
mittee activity will help the visualization of the opera- 
tion of the plan. One of the findings of the Money 
Committee, for example, was that the "paper work" or 
order system of a certain plant amounted, in materials 
and labor involved, to 8% of the total production cost. 
This was considered an excessive amount and its survey 
was recommended to the General Committee on 
Methods through its sub-committees on Ojfice Routine 

and Systems. 

The members of this sub-committee first made sure 
that they understood each step involved in the practice 
in vogue^ — and to do this most effectively and easily, they 
mapped the routine on a chart, as described in "Planning 
Department Systems." "^ 

After this was done, they questioned each step, first 
as to its necessity and next as to its efficiency, discuss- 
ing the matter thoroughly and broadly with the operat- 
ives in each department who came into contact with the 
system in an}^ way. 

They found as a result of their survey that there 
were eleven distinct, unrelated, printed forms used, that 
six of these were of such nature as to be easily dis- 
pensed with by slightly altering the other five, and that 

* Industrial Management, November, 1920, page 373. 

13 



these five in turn could be so arranged as to be typed at 
one operation instead of written individually. They 
reported these facts to their General Committee, which 
went a step further and found that extra copies of the 
same form could be adapted to the needs of the Purchas- 
ing Department and the Billing Clerk, thus eliminating 
several more steps. The General Committee recom- 
mended to the Coordinating Committee that the new 
plan be installed, that a listing and billing machine of 
sufficient power to make all of the necessary copies at 
one time be purchased. It also recommended that the 
two shop clerks who were not needed under the new 
plan be transferred to production work. 

The Co-ordinating Committee considered these sug- 
gestions and acted upon them, instructing the Purchas- 
ing Agent to secure the necessary forms and the new 
equipment, and also advising the Personnel or Employ- 
ment Manager to place the two shop clerks at produc- 
tive work."^ 

The Publicity Sub-committee of the General Commit- 
tee on Men functioned in the above case by publishing 
or posting the facts of the case, explaining the new pro- 
cedure and its superiority to the old one and calling 
attention to the new work of the replaced employees. 

ANOTHER EXAMPLE OF COMMITTEE WORK 

Another illustration along somewhat different lines : 
The Cost Survey Sub-committee of the General Com- 
mittee on Money reported that the cost of a certain ar- 
ticle was such as to require a seUing price too high to 
develop its maximum possible sales market. This prob- 
lem was handled by four sub-committees, as follows : 

Snb-conimittee on Production Process Surveys: 

Surveyed and analyzed the existing production process 
and invited suggestions as to simplification. Found that 
a slight change in design would eliminate three operations. 

* It is important that provision be made for all who are thus 
displaced through Cost Control Committee recommendations^ to 
be placed at other work with equal or better pay, and if possible 
with better opportunities. If this is not done, cooperation will 
cease. Committees of employees cannot be expected to help to 
uncover wastes and reduce them if this means depriving other 
fellow employees of a living. The responsibility rests upon the 
management to capitalize these economiies in growth that will 
absorb, in productive work, those who are released from non- 
productive work. 

14 



Sub-committee on Production Equipment Survey : 

Cooperated with above committee in search for ma- 
chinery that would reduce production cost. Discovered 
that the purchase of an automatic machine would return 
60% on investment in savings in first year. 

Sub- committee on Alternative Materials: 

Analyzed the material components of cost with the view 
of substitution of less expensive but equally suitable ma- 
terials. Found that five operations could be eliminated by 
using die castings and that a sheet steel stamping could 
replace an expensive casting. 

Sub-committee on Publicity : 

Called attention, in advance of the investigation, to the 
facts which necessitated, the reduction in cost. Published 
the results after they were obtained. 



Co-ordinating Committee: 

Readjusted the price of the article so that it would sell 
freely at a good profit. 

WHY CANNOT THESE PROBLEMS BE LEFT TO 
MANAGEMENT? 

One may say that all of these problems are part of the 
function of the management — therefore why erect this 
Cost Control Committee organization structure to do 
the work that management is supposed to do? 

Leaving aside the necessity for developing economy 
morale, as outlined previously, by creating a flow of in- 
terest opposite in direction to the disciplinary flow of 
orders, there still remains a very good reason. No 
management, if we restrict this term to its usual inclu- 
sion of executives and department heads, has enough 
time or energy available to thoroughly cover one quarter 
of the profitable investigations that any live "Money" 
committee can suggest. A little thought in connection 
with the prospective activities of the several committees 
listed on page 17, will conclusively demonstrate this 
fact. It is only by making the word management em- 
brace the entire personnel that it can become "hydra 
headed" enough to keep pace with the almost infinite 
possibilities for waste elimination and cost reduction. 



15 



Recapitulation 

Economy and Waste Reduction must be key-note 
policies in successful organizations for several years 
to come. 



Disciplinary measures and channels are not suffi- 
cient to induce miaximum employee cooperation to- 
ward waste reduction, or in other words, to build 
economy morale. 



The Cost Control Committee Plan is a mechanism 
tor intelligently directing creative thought on the 
part of the whole organization and for liberating a 
vast reserve of potential creative effort toward waste 
reduction. 



To succeed, it must be undertaken in a spirit of 
mutual cooperation for mutual benefit, and its suc- 
cess must be reciprocally applied. 



16 



Suggested Activites for Various 
Sub-Committees 



Committee. 
Money — Expense Analysis 



Money— Cost Analysis 



Function. 

A thorough survey of all 
items of expense and the seg- 
regation of "high spots" of 
large percentage for attack. 

Analytical study of product 
costs for the determination of 
"high spots." 



Money — Budget Adjustments Revision of Operating Cost 

and Expense Budgets as the 
Cost Control C o m m i 1 1 e e 
work progresses. 



Men — Employment 



Men — Incentives 



Men — Production Quotas 



Men — Publicity 



Men — Education 



Methods — Office Routine and 
Systems 



Methods — Production 
Process Surveys 



Methods — Handling 



Cooperation with employ- 
ment manager in search for 
"square pegs in round holes." 
Replacement of those dis- 
placed by waste reduction 
activities. 

Recommendation of incen- 
tives, cash and otherwise, as 
direct stimulus for success- 
ful and noteworthy waste re- 
duction. 

Readjustment of production 
quota budgets as work of 
Cost Control Committees 
progress. 

''Selling" the Cost Control 
Plan and keeping it "sold." 

Explanation of various proc- 
esses, uses of product, etc., 
as an aid to the work of the 
technical committees in se- 
curing practical suggestions. 

Critical study of the use and 
efficiency of methods for 
handling routine, and their 
comparison with other plant 
practice. 

Step-by-step study of var- 
ious manufacturing process- 
es in order to either justify 
present practice or improve 
it by greater economies. 

Analysis of methods of hand- 
ling work between machines 

17 



and departments 
of simplification. 



with view 



Methods — Stock keeping 



Methods — Power Plant 



Machinery — Productive 
Equipment Survey 



Machinery — Transmission 
and Auxiliary Equipment 



Study of rates of transit and 
"idle time" of stock parts, 
with vievv^ to reducing invest- 
ment in materials in process. 

Comparison of present power 
costs to best practice and 
recommendations for waste 
reductions in power genera- 
tion and distribution. 

Comparison of efficiency of 
available improved equipment 
with present ecjuipment, as 
adapted to the product mianu- 
facture. 

Study of transmission equip- 
ment, belting, elevators, con- 
veyors, trucks, industrial 
trackage, motor fleets, etc., 
with view to comparison of 
efficiencies and improvement. 

Systematic observation of 
shut downs, idle time, etc., 
with view to its reduction 
and consequent reduction of 
the "machine-hour" charge. 

Study of materials compos- 
ing the product Vsnth view to 
substitution of equally desir- 
able but less costly compon- 
ents. 

Materials— Waste and Scrap Systematic inspection of all 
Reduction scrap, cuttings, waste, etc., 

with the view of tracing it to 
its source and reducing it. 

Materials— Reclamation Study of and search for 

means of reclaiming, utilizing 
or profitably disposing of un- 
avoidable v/aste materials. 

The above are but a fev/ of the many profitable 
possibilities for Cost Control Committee Work. Read 
them over. Then ask yourself whether it is not dis- 
tinctly worth while to get all of your progressive em- 
ployees, in addition to your department heads, act- 
ively thinking along these lines? 

The Cost Control Committee Plan will 
Solve Your Problems 



Machinery— Reduction 
of Idle Time 



Materials — Alternatives 



18 



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